Insights

ICM Monthly Outlook - November 2024

The US equity market turned full risk-on as soon as the election result became clear. Initially, we saw a relief rally due to the certainty of the outcome, followed quickly by a rally premised on President Trump’s expansionary economic policies, tax cuts, deregulation, and expected higher GDP growth in the US. The fact that US equity markets snapped higher so suddenly tells us the result was not priced in beforehand. Based on the mountain of published analysis so far, it seems the economy kept top billing. Voters punished the Democrats for the ill effects of inflation on their daily lives over the last four years. President Trump has promised to end inflation. US voters will expect him to deliver, but that might be easier said than done. Read on to find out what we believe the market implications will be.

ICM Monthly Outlook - October 2024

In recent months, we have mentioned reasons to be concerned around global trade, such as the possible introduction of tariffs by the next US President. This month, the European Commission imposed tariffs as high as 45% on electric vehicles from China due to state subvention for these industries. The Chinese Government protested their innocence and threatened to respond with tariffs on agriculture and European automobiles, much to the frustration of some member states who stand far worse from losing competitiveness in such a large market. The US Federal Reserve Bank surprised most investors when it cut rates by 50 basis points in September, with interest rates in the range of 4.75% to 5% now. (Thank God we didn’t spend long debating that event - sarcasm alert for our US readers.). Financial markets rallied hard after the 50 basis point cut. Some interpreted the strong action as an admission of tardiness by the Federal Reserve, suggesting it had fallen behind in executing a soft landing. The better employment data in September lessens the need for further aggressive (50 basis points) cuts. The market expects only two more 25 basis point rate cuts in 2024, whereas we anticipate possibly only one more 25 basis point cut for this year.

ICM Monthly Outlook - September 2024

Uncertainty and volatility go hand in glove. Uncertainty refers to the lack of predictability of information, making investment outcomes harder to forecast. Volatility measures the dispersion of short-term shocks around a long-term mean. Volatility has risen since the start of July due to increased uncertainty. Weak job data in the US and a divergence in central bank policy expectations between the US and Japan brought on August’s volatility. We believe the market volatility since the end of July is mid-cycle skittishness rather than the prelude to a more severe end of cycle sell-off. That said, we are not surprised that volatility has increased given the vulnerabilities festering over the last few months. Now, investors are debating all the interconnected economic factors, overlayed with rising political and geopolitical risks, to determine what will happen next. Investors are less endowed with certainty right now. There is no question that weak economic data spooked the market in early August, but we have no reason to believe this will worsen in the coming months. The latest economic data has been encouraging, with the unemployment data not as bad as feared and consumer confidence higher than expected.

ICM Monthly Outlook - August 2024

For some time now, we have been bullish on the outlook for risk assets, a view that has primarily played out. Firmly held views can often fall victim to confirmation bias, the tendency to interpret new information in such a way as to confirm existing beliefs. We have enough humility to realise that we are not immune. After such a strong rally, now seems like an ideal time to revisit our bullish thesis on risk assets. Economic growth, like inflation and interest rates, continues to support risk assets. Therefore, in our opinion, we remain in a Goldilocks-like environment due to the twin tailwinds of increasing growth and slowing inflation. While we continue to believe that we are in a Goldilocks period, we recognise that it is maturing and could be in its later stages.

ICM Monthly Outlook - July 2024

The first half of 2024 will be a tough act to follow for equity markets. The S&P has returned c.18% year-to-date and 16% in the first half. Like recent years, a big theme has dominated this year's return. Approximately two-thirds of the US equity markets’ returns were driven by just a few names: Nvidia, Apple, Microsoft, Amazon, and Meta. Even Tesla, one of the laggards of the Magnificent 7, has rallied lately thanks to renewed optimism for robo-taxis and higher sales. Year-to-date, investors' returns are delineated by ‘performance with tech stocks’ versus ‘performance without tech stocks. We are cautious going into 2025. The changing political landscape is the biggest risk to the global economy, in our opinion. Polarised politics will lead to more extreme policies, higher taxes, less globalisation, and lower investor returns.  Against a backdrop of increased tariffs and higher taxes, we are not pollyannish for global trade, which could result in a lower oil price from reduced demand. On the other hand, the value of the US dollar should decline against its trading partners if the Federal Reserve Bank starts to cut rates faster than the other major central banks, which is likely. This would be welcome news for emerging economies. Typically, looser financial conditions and credit expansion favour the real side of emerging market economies. Improving global liquidity and a lower oil price makes it easy to see a path to higher global growth.

ICM Monthly Outlook - June 2024

In May, the US economy took two steps forward and one step back from that elusive pivot. Jobless claims and the Institute of Supply Management suggested weakness in the US, but nonfarm payrolls were much stronger than expected. The US 10 year yield was four basis points lower on June 10th than on May 10th. Our outlook synopsis remains that the disinflation trend is still intact, at least for now. We expect core PCE to drop to 2.5% from 2.8% as lower shelter costs and declining wage costs feed into the year-over-year measure. We expect the jobs market to continue to slow and rebalance. The recent JOLTs report points to this loosening in the jobs market. However, getting inflation much lower than 2.5% could be a struggle as the economy and business cycle still looks resilient.

ICM Monthly Outlook - May 2024

Investors, commentators, and journalists remain fixated on #inflation and, ultimately, its impact on monetary policy. For nearly a year, writers are like a broken record, parsing the same data with the same rhetoric, looking for the first hint of the elusive pivot by the Federal Reserve. As far as the Federal Reserve’s Chairman is concerned, there’s no hurry to cut rates. While the most recent inflation data was encouraging, it is probably not enough to convince Federal Reserve officials to cut earlier than September. Click through to view our market outlook and predictions

ICM Monthly Outlook - April 2024

What a difference a year makes. This time last year, markets were digesting the failures of Silicon Valley Bank (“SVB”), Signature Bank, and Credit Suisse. At the time, it seemed that Central Bankers had gone too far and severely stressed the financial system. In addition to a strained financial system, ominous signs loomed over the US economy. Economic indicators, ranging from The Conference Board Leading Economic Index to the ISM US Manufacturing Purchasing Managers Index, painted a bleak picture, and economic commentators were falling over themselves to predict ever-gloomier outlooks. Fast forward twelve months, and the US economy has just recorded a remarkable nominal GDP growth of 6.3% in 2023, 2.5% in real terms. The S&P 500 has surged by an impressive 30% over the past twelve months. So much for economic forecasts!

ICM Monthly Outlook - March 2024

February 2024 was another strong month for equity markets. Of all the major developed economies, the US continues to enjoy the best economic performance, has the best economic prospects, and, therefore, continues to see the best financial market results. While we expect the US growth rate to be softer in Q1 2024 than it was in Q3 and Q4 2023, due to below-average retail sales and reduced construction activity caused by adverse weather conditions, we still expect the US economy to grow strongly in Q1 and throughout 2024. The equity market’s great run-up in 2024 has been led by renewed investor confidence that the US economy is solid, helped a little bit by higher-growth companies such as Nvidia and other mega-cap tech stocks. The US dollar has performed exactly as we anticipated and should hold its ground or modestly strengthen against most global currencies in 2024, thanks to the US’ stronger economy and better prospects.